Rebuilding Europe

Brown Brothers & Co. and W. A. Harriman & Co. Inc. (WAH&Co., the financial arm of Averell Harriman’s shipping business) were both leading actors in the reconstruction of Europe after the First World War.

WAH&Co. invested in wide array of enterprises in Germany and Europe, with a focus on shipping, steel, municipal transport, utilities, and mining. Many of these deals were done in close collaboration with M. M. Warburg & Co., one of Germany’s outstanding Jewish-owned banks.

Brown Brothers was among the first banks into Europe after the war. In France, for example, it financed an expansion of French railways including the Chemins de Fer du Nord, which in 1926 would introduce luxury rail service between London and Paris.

Like WAH&Co., Brown Brothers was also active in Germany, where it had ties dating back to the early 19th century. The firm made loans to German industrial firms, but most of its business in Germany came in the form of short-term credits to other banks, including the Reichbank, Germany’s central bank.

Lending to German banks was considered safe, given the nation’s high industrial capacity and the reputation of German firms for creditworthiness. Unfortunately, those banks lent out this money on much longer terms. When hyperinflation struck in 1923, it not only decimated the savings of millions of ordinary Germans but also undermined the value of loans from American banks.

This might have sent bankers running for the hills, but there were many reasons why Brown Brothers, like other private banks, chose to remain in the German market throughout the 1920s.

Only with a healthy economy could Germany pay the war reparations it owed to the Allies under the Treaty of Versailles, which the Allies, in turn, needed in order to repay their own wartime loans from U.S. banks. The United States, moreover, had a keen interest in Germany as an export market. That is why the U.S. government brokered two agreements (the Dawes and Young Plans) that aimed to restructure reparations payments and stabilize the German economy through additional foreign private loans.

The Great Depression soon upended these plans.

As foreign credit dried up and its economy foundered, Germany defaulted on its debt and reparations payments, with profound consequences for the private banks, like the new Brown Brothers Harriman, which were now saddled with bad loans. Still more serious were the consequences for world peace, as the deepening economic crisis fueled the rise of the Nazi party in Germany.

For Further Reading

  • Leonard Gomes, German Reparations, 1919-1932. New York: Palgrave Macmillan, 2010.
  • Margaret Macmillan, Paris 1919: Six Months that Changed the World: New York: Random House, 2001.
  • J.C. McKercher, ed. Anglo American Relations in the 1920s: The Struggle for Supremacy. London: Macmillan Press, 1991.
  • Stephen Schuker, The End of French Predominance in Europe: The Financial Crisis of 1924 and the Adoption of the Dawes Plan. Chapel Hill: University of North Carolina Press, 1976.


200 Years of Partnership

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